By Pierre Noël
[Editors’ note: This post is an extract from an article that will appear in the upcoming issue of Survival. See Samuel Charap, John Drennan and Pierre Noël, ‘Russia and China: A New Model of Great-Power Relations’, Survival, vol. 59, no. 1, February–March 2017]
During a presidential summit in Shanghai in May 2014, Russia and China signed a 30-year gas purchase and sale agreement reportedly worth $400bn. CNPC (China National Petroleum Corporation) committed to buy 38 billion cubic metres (bcm) of gas annually from Gazprom. This volume amounts to 20% of China’s 2014 consumption and 60% of its 2014 gas imports. The 38-bcm annual volume should be attained around 2025 after a ramp-up period of several years. The first exports could happen in 2019 or 2020. On the Russian side, the project involves some $70bn of investment, including $20bn for field development, $35bn for the pipeline itself and $15bn for a gas-treatment plant at the Chinese–Russian border, in partnership with Russian chemical company Sibur. Field-development and pipeline-construction work are now proceeding apace. In September 2016, Gazprom and CNPC finalised an agreement to build the cross-border section of the pipeline under the Amur River.
The official view in Russia is that Power of Siberia, as the project is known, is only the first step toward building a strategic gas relationship with China, akin to the one it has with Western Europe. Russian reserves would certainly support a long-term gas trade of 100bcm per year. Power of Siberia will create a physical link between the two countries, worth tens of billions of dollars, supporting a flow of energy worth many times that over three decades.
While this gas relationship between Russia and China necessarily has strategic implications, its significance to the two sides is fundamentally different. The Russian government would like it to be understood as a key strategic bond between the two countries. Energy has been the defining factor of Russia’s post-Soviet international economic policy and diplomatic influence. Establishing a gas relationship with China in the aftermath of the Ukraine crisis is perceived as a major success by Moscow. According to the narrative presented by Russia’s authorities, Power of Siberia signals the natural complementarity between the two countries and demonstrates Russia’s ability to develop new export markets outside of Europe.
For China, the gas relationship with Russia is much more mundane. China does not ‘need’ Russian gas (though some Chinese analysts see the energy relationship with Russia as an opportunity to reduce, in relative terms, the country’s dependence on imports by sea) and is under no pressure to compromise on its interests, economic or political, in order to get it. Some Chinese economic and environmental objectives will be easier to achieve with ample gas supply, but none are dependent on the gas relationship with Russia specifically. Chinese state-owned energy companies have demonstrated their ability to bring energy to China, including natural gas, from a fast-growing number of countries and regions, at prices consistent with (or lower than) international market conditions. Resource holders all...